The Military Mutual Aid Association (MMAA), South Korea’s $8 billion savings fund, is studying investing in offshore private debt funds (PDFs) and non-performing loan (NPL) funds early next year, betting on the growth in private lending and bad loans in the aftermath of toughened banking regulations, its chief investment officer told a newspaper in a recent interview.
“Banking regulations in the U.S. and Europe are reducing room for banks’ lending. In particular, we expect more investment opportunities will come up from Europe which faces greater economic volatility,” the Maeil Business Newspaper quoted Sang-ho Lee, MMAA’s CIO, as saying.
He gave no further details on the amount of prospective commitments to offshore PDFs and NPL funds.
Interest rate hikes and price rises in the U.S. property market have led Korean institutional investors to shift toward private lending, away from equity investments in real estate. In Europe, uncertainties about Brexit negotiations and the acceleration in the clean up of banks’ balance sheets raise optimism about the NPL market.
In 2017, the retirement savings fund for military officers plans to boost alternative investments by as much as its projected net asset growth, or 600 billion won ($505 million), the daily reported on Dec. 19. Alternative investments represent 70% of the MMAA’s total assets which are projected to rise to 10.4 trillion won next year, from this year’s estimated 9.8 trillion won.
Lee is upbeat about emerging market debts, such as sovereign debts and investment-grade corporate bonds in India, Vietnam and Indonesia. On top of higher interest payments, emerging market bonds are seen as less vulnerable to tightening cycles in developed economies and U.S. president-elect Donald Trump’s protectionist policies.
The CIO picked India as the most attractive among offshore bonds, citing fast economic growth, stable currency rates and domestic demand-focused economy in India.
Of the 250 billion won worth of offshore fixed-income portfolios, MMAA started placing100 billion won in Indian debts. Next year, it will put the remaining 150 billion won into emerging debts, withdrawing from advanced market fixed-income funds.
For equities, Lee prefers dividend stocks in Taiwan because of high dividend payout ratios of Taiwanese companies. MMAA is considering making fresh investment in exchange traded funds investing in Taiwan’s dividend stocks.
<Edited by Yeonhee Kim>